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  15th December 2008 - STAR MARITIME

DHL: Asia too dependent on the West

ASIAN governments need to re-balance their economies as they are currently too dependent on the West, according to a study commissioned by DHL and undertaken by the Economist Intelligence Unit.

“Much of Asia has grown up on the back of vibrant trade with the West,” said Justin Wood, a director at the Economist Intelligence Unit and South-East Asia expert.

“But with the economies of North America and Europe forecast to perform poorly next year, the impact on Asia’s trade-dependent economies could be serious indeed.”

The study, entitled: Fuelling Global Trade: How GDP growth and oil prices affect international trade flows, also revealed the slowing Asian growth story and the need to re-balance their economies, said Frank Appel, the CEO of Deutsche Post World Net, the parent company of DHL.

“The challenge that Asian trade faces today is to hasten the migration to high value goods and focus on managing their growing dependence on oil.”

“The impact of rising oil prices will add risks and negatively impact Asian international trade,” Appel continued. “The study also reveals that for 2009 and beyond, international trade will depend more on rising Asian incomes, than the West.”

The study examined trade flows between 39 countries in three regions - Asia, the European Union and the North America Free Trade Agreement (NAFTA).

It included three countries under NAFTA- the US, Canada and Mexico, 25 European Union countries, the six largest economies in ASEAN along with Japan, South Korea, India, China and Hong Kong in Asia.

The report looked at the bilateral trade flows between each country and those outside its immediate trade bloc or region, which resulted in 383 bilateral trade relationships.

According to the study, the link between income and trade is stronger between Asia and the West than between North America and Europe.

A 1% increase in combined income between an Asian country and a Western country will deliver a 1.36% increase in trade.

Trade between ASEAN and the West will rise 1.35% for every 1% increase in combined income, while between two Western countries, a 1% increase in combined income delivers a 1.14% increase in trade.

“Equally, with oil prices showing extreme volatility this year, and with the price of oil likely to rise after the current economic downturn passes, this study identifies further challenges for Asian nations to address, especially in terms of pushing their manufacturing industries up the value chain,” Wood said.

Based on an average of all the 383 bilateral trade relationships in the study, a 1% increase in oil price leads to a 0.24% reduction in trade, with the assumption that all other drivers, such as income levels in two countries, remaining constant.

High oil prices have the greatest effect on Southeast Asia, where trade decreases the most.

The impact on oil prices is much greater when an ASEAN country trades with a nation in the EU or NAFTA , a 1% increase in the price of oil reduces the value of trade by 0.3%. Assuming no rise in income levels, the value of trade between ASEAN and the West would fall by 30% over five years if oil prices doubled, as had happened in middle of this year.

In West-to-West trade, there is a higher proportion of “high-value” goods such as computers, aircraft and media devices, and a smaller share of “low-value” goods such as coal and gas, palm oil, textiles and shoes.

In contrast, Asian nations are likely to have a much higher proportion of trade centred on low-value goods.

Since transport costs make up a larger share of the final cost of low-value goods than they do for high-value goods, rising oil prices have a larger impact on trade growth for Asia.


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